Vivendi Has to Make Most of SFR Auction

Choosing between competing takeover bidders and the uncertainty of an initial public offering should be a no-brainer for a businessman wanting to sell a prize asset. Play hard to get, and take the higher bid.

But the task facing Vivendi’s board and soon-to-be-chairman Vincent Bolloré as they mull the sale of the media group’s SFR telecom unit isn’t simple, partly because there’s not yet full detail so far on the competing bids.

Neither industrial conglomerate Bouygues nor Altice, an Amsterdam-listed private-investment company that owns French cable-operator Numericable, has proposed buying all of SFR. So while Vivendi will eventually have the right to sell out, it will remain a significant shareholder for the time being, ensuring it can’t be indifferent to how the business will be run or financed.

Bouygues has offered €10.5 billion ($14.42 billion) as part of a deal in which it will merge SFR with its own telecoms unit to create a new company 49% held by itself, 5% by partner JCDecaux, and 46% by Vivendi.
Altice for its part would pay around €11 billion to merge its publicly traded Numericable with SFR, leaving Vivendi with 32% of the combined entity and Altice with 51%, according to a person familiar with the matter.

Among the thorny questions for Mr. Bolloré to resolve is the scale of the competition risk that the Bouygues-SFR deal presents. It would be a merger of France’s second and third mobile operators. The Numericable deal presents no such challenge. “A Bouygues-SFR tie-up would give them a market share of more than 50% [in France] which constitutes a problem in our view,” said analysts at Exane BNP Paribas.

Bouygues and Numericable plan to gear up the combined entity. SFR-Bouygues Telecom would bear the greater debt burden, with the €10 billion cost of the acquisition on the balance sheet. SFR-Numericable would be leveraged only to the tune of €8 billion, with Altice also planning a €3 billion sale of Numericable stock to finance the takeover.

Still, as a partner for SFR, Bouygues is a conservatively-run, family-controlled group, with long experience in the telecom business, a rather different animal from the private equity-like Altice.

Altice, though, reckons it can extract more value from an SFR-Numericable merger, putting the value of synergies, according to a person familiar with its plans, at €12 billion in today’s money against the €10 billion forecast by Bouygues. Likely capital spending savings make both estimates look partially credible but harder for Vivendi to judge is whether Altice or Bouygues will get the full cost savings they envisage without forced redundancies—Bouygues says there will be none—let alone uncertain revenue gains.

Vivendi’s board finds itself with unexpectedly favorable circumstances to hang up on SFR but it has to still to make the most of the auction for the benefit of all its shareholders.